Thanks, Dan, good to be back in live-update land one week later. We already know the general shape of Apple's quarter—it's record revenue, record iPod sales, and record Mac sales. Now we get the nitty gritty. -J.S.

2:04 PT - DM: Here we go. Opening introductions are on the way. We'll have CFO Peter Oppenheimer and COO Tim Cook, as per usual. We get the usual boilerplate about forward-looking statements. One would hope they aren't backward-looking, so that's good.

2:05 PT - DM: Oppenheimer in the house. Once again, Apple is reporting their best quarter ever. 35% growth of revenue to $9.6 billion. Increase over year again quarter, domestic business revenue growing 27% year over year and international grew year-over-year by 46 percent. Net income was $1.58 billion, 58% over prior December quarter results. $1.76 earnings per share.

2:06 PT - DM: 47% of total quarterly revenue was from the Mac. 2.3 million Macs. More than 2.5x the market rate of growth in December quarter. Sales of the iMac are "very robust" growing 33% year-over-year; portables grew 38% year-over year. Extremely pleased with very successful launch of Leopard. Total Leopard revenue about $170 million in quarter, a "significant increase" over the $100 million generated by Tiger in its first quarter. 19% of the installed base estimated to already be using Leopard.

That's the third straight quarter in which Apple has re-set the record for most Macs ever sold in a quarter. To put it bluntly, Apple is currently selling more Macs than it's even sold before, and the numbers continue to increase. -J.S.

2:08 PT - DM: Music segment accounted for 50% of revenue in quarter. 22 million iPods, surpassing previous year-over-year quarter. One primary goal in holiday season establishing an entirely new iPod: the iPod touch. This model is intended to grow the market with first major mobile Wi-Fi platform. Challenge for establishing entirely new iPod at the top of the line, and it's the most expensive. iPod touch increased ASP of iPods across the line. Last week introduced five new apps and the ability to watch movie rentals. iPod market share was consistent with the year-ago quarter. Internationally, gaining market share in all European and Asian countries. Customers continue to rave about iPhones. Sold over 2.3 million iPhones. Total revenue from all iPhone was $241 million. $1.44 billion in recognized revenue.

This is the quarter where Apple books the bulk of its iPod revenue. It's "the iPod quarter." And this year, it was still setting a record, though it's clear that iPod growth is slowing. How could it not? Doesn't everyone already have an iPod? However, the high ticket price of the iPod touch means that Apple's money-per-unit on iPods is getting better. -J.S.

2:10 PT - DM: Retail segment also had record results. $1.7 billion in revenue, representing year-over-year growth. Opened third store in Manhattan which devotes entire floor to Genius Bar, personal training and Pro labs. Ended with 204 stores. Witha verage of 201 stores open, $8.5 million revenue in quarter compared to $6.6 million. 64% year-over-year growth in Mac sales. Again, over 50% of customers were new to Mac. 14.7 thousand vistors per store per week. New concierge teams were exceptionally well received by customers. Over 300,000 personal training sessions during quarter: new all-time high.

2:14 PT - DM: Very enthusiastic about our new announcements, including MacBook Air, movie rentals, new software for iPhone and iPod touch, and Mac Pro.

2:14 PT - DM: It's time for question-and-answer! Let's hope we don't have the same technical difficulties we had last quarter.

2:15 PT - DM: Katie at Morgan Stanley gets the first question. We're talking about the predicted revenue decline in the next quarter, which is apparently higher than in previous years. Asking for a walk through of why the prediction is lower than usual.

2:16 PT - DM: Peter: Guidance is up 29% year-over-year. Provide guidance that Apple has "reasonable confidence in achieving." Apple's gudiance is usually pretty conservative, so this isn't too surprising.

As Dan points out, Apple generally is very conservative when it comes to its predictions for following quarters. Apple likes to present good surprises, both in keynotes and in financial statements. The danger, of course, is one of these days their conservatism will prove correct, which might make the financial geniuses overshoot their own guesses. But it's worked well for Apple the past few years. -J.S.

Tim: Macintosh business is on fire (could he have said con fuego?). Pro audio up very significantly up year over year, video business continued to perform very well.

STM: Effect of iPhone rebates during quarter?

Peter: Customers appreciated the $100 credit. Impact of that is largely behind Apple, since they saw it in Sept. and Dec. quarters.

STM: iPhone unit expectations for 2008?

Tim: Remain very confident in hitting 10 million goal for 2008.

2:19 PT - DM: David at Goldman Sachs: Little more detail on inventory targets in the channel in terms of weeks? Implied unable to meet all the demand out there: more detail? Specifically about Mac.

Tim: Target is between 4-5 weeks of inventory. Ended quarter at significantly less than the range. Mac sales much higher than anticipated and trememndous momentum (way to spin it!).

Goldman Sachs: Can you get back to target range by March?

Tim: We don't forecast that. Embedded in guidance.

Goldman Sachs: Reaching a saturation point for MP3 players, based on small iPod sale increase?

Peter: View iPod market as bigger than just market for music player—hence, the iPod touch, which they see as the first mainstream Wi-Fi mobile platform. 17% revenue growth year over year, and they don't think it's characteristic of saturated market.

That's a nice, clear statement from Apple: "We believe one of the iPod's future directions is to become the first mainstream Wi-Fi mobile platform." In other words, that's how you get around the fact that everyone's got an iPod. Well, sure, you make a pink iPod nano. But the other thing you do is bring out the iPod touch and begin the transformation of iPod from a music-and-video device to an Internet device as well.

2:21 PT - DM: JP Morgan: Any cannibalization between iPod and iPhone?

Tim: Look at the UK, France, Germany, and there's no obvious evidence of cannibalization. iPod sales were flat in US year-over-year, so it could have been a factor, but difficult to say for sure, given possible factors.

JP Morgan: iPhone inventory?

Peter: Not providing that specifically. One vendor per country.

JP Morgan: Given success of touch, will the ASP's stabilize?

Peter: iPod ASP did increase sequentially and year-over-year, due to the succcesful intro of the iPod touch.

2:23 PT - DM: Richard at Citi: Comment on the linearity of iPod sales over the quarter, vis-a-vis normal seasonality? NPD data suggested a weakening. Any sort of rise in iPod inventory in 4-6 week range in quarter?

Tim: Look at demand curve across quarter, the curve was very similar to the curve we saw last year. In the US, NPD data suggesting that in the gift-buying season there's a different curve. Made up for by very good growth internationally.

Citi: Any concern that that is evidence the economy is heading in that direction?

Peter: We'll leave the economic forecasting to others. We're focused on managing our business. Peter is reiterating the quarterly results, which all point to good results: Mac sales, retail sales, international sales. Continuing to invest in innovation and improve the buying experience.

Citi: One final question on share buyback. $18.5 billion and no debt, probably generate $1 billion in cash flow per quarter. Predictability of earnings increasing over time, thanks to iPhone income. Use of this cash and share buyback?

Peter: Cash generation in Dec. quarter was very very strong. Cash went up by over $3 billion, $2.76 billion came from operations. Stock buyback programs and other forms of returning cash discussed with board from time-to-time, but they'd rather keep the cash on hand to make acquisitions or other spending.

2:27 PT - DM: [Missed who asked this question] Guidance question again. Feel like good things are ahead? He's asking about Peter's feelings, which seems like it might be more appropriate for a different sort of call.

Peter feels great, very confident about product line. He couldn't be more proud of the Apple team. Again, they give guidance that they have reasonable confidence in achieving.

Question: MacBook Air. Incremental in Mac units, or will it cannibalize Pro or MacBook lines?

Tim: We just announced it. The customer reaction has been great, orders "very strong," but it's too early to tell the cannibalization factor.

Question: In guidance, what are you thinking about when it comes to iPods? Cannibalization of iPhones and iPods?

Peter: In terms of assessing seasonality, what drives MP3 sales are innovative launches and the holiday buying. Expecting decline in the March quarter. Shipping the best iPods they've ever made (but then again, they always say that).

Question: Elaboration on special factors? Tim mentioned that iPods were flat in the US: possibly cannibalization. What other potential factors?

Tim: Set out to achieve 3 things in Dec. quarter with iPods: 1) hold already high-share in US, continue to grow share internationally (share gains in UK, France good), 2) sell at least number of iPod units in guidance, and 22 million not only set record, but exceeded guidance, and 3) wanted to establish an entirely new type of iPod: the iPod touch. iPod touch has potential for first wireless mobile platform "running all types of applications" (that's good news for the SDK, it seems to me). In achieving all three of these, grew iPod revenue 17% year-over-year. Highest growth rate revenue in iPod for years. Touch sacrificed unit growth, but happy with execution.

There we are again—doubt no longer that iPod touch is the future of the iPod line, and over time the iPod will transmogrify into a combination of media player and wireless mobile device with rich applications. Also a nice bit of nuance there: though this is the iPod Quarter every year, Tim Cook pointed out that the 17% year-over-year growth on the iPod this quarter is actually higher than the year-over-year growth in the last three quarters.-J.S.

Tim: Ended the quarter with 286 Best Buy stores. Added to the Mac momentum. Elected to expand further, jointly agreeing with Best Buy to around 600 over the next six months. Very very happy with how that relationship is coming out.

Peter: We've just introduced it. We think customers are really going to love it. Objective: run the iTunes Store a little above break even. They think it helps sell iPods and Macs.

Shannon: MacBook Air. Any more ideas about how it fits in product roadmap, long term? Ultramobile market more of a niche product?

Tim: We create products that we hope will appeal to all types of people. MBA will appeal to travelers, professors, all types of people who want quick access to the computer wherever they are. Superior combination of size, weight, performance, and form factor while being "very competitively priced if you look at what other people are charging for these." Great segment and great new product.

Shannon: We ordered a couple!

Tim: Orders are strong, hope you got a good place in the queue.

Let the tea-leaf-readers and Kremlinologists commence their speculation. Apple's first word on how the MacBook Air is going is: "Orders are strong." And the black dog barks at midnight. -J.S.

2:35 PT - DM: Keith at Bank of Montreal: Any help on Leopard in March quarter in terms of expectations? How did Tiger do comparatively?

Peter: As indicated, Leopard is off to great start. Customer and reviewer response "off the charts" and estimating 19% of Mac installed base already enjoying Leopard. Tiger sales were 100 million in first quarter, 35 million in second quarter. Leopard sales in first quarter were 170 million.

Keith: Expect similar trajectory over March quarter? And, vis-a-vis 19%, which direction does that go?

Peter: Have to see. Sales will be down sequentially in March quarter. Don't know if it will follow Tiger's lead, but Leopard's been doing very well. Talking about largely box sales, but Leopard is shipping on every Mac too, and that contributes to Mac sales.

Keith: Japan sales had a nice bounceback. What caused that?

Tim: We've struggled there for several quarters. One data point doesn't make a trend, but reception to iMac was tremendous. Desktop share went from 6% to 10% year-over-year, and iPod touch was received well. Those two things together really drove Japan performance.

I want you to get me a carrier sales detail. Hold the turkey, hold the mayonnaise, hold the AT&T data. And I want you to hold it between your knees. (Too obscure a Jack Nicholson reference?) -J.S.

2:40 PT - DM: Gene Munster at Piper Jaffray: Lot of questions about high-end consumer health? How should investors view that relative to Apple in 2008?

Peter: Leaving economic forecasting to others. We're focusing on managing our business. If Dec. quarter was any indication, Apple did incredibly well. Revenue up both in and out of US; retail stores had record quarter, traffic up 10 million year-over-year. Very confident in strategy and products. Going to keep coming out with innovative hardware and software products.

Gene: In terms of international iPhone rollout, what's the target?

Tim: Plan to enter Asia in 2008. Rolling out additional European countries in 2008.

Gene: Lot of talk on China; anything specific?

Tim: Nothing specific to announce today.

Gene: What will it take for the Apple TV to become more of a business than a hobby?

Tim: We're back with Apple TV take 2, and movie rentals direct from iTunes. "We think we have it right this time, so we'll see." Not projecting volumes, but think we have a great product.

2:42 PT - DM: Andrew at Bear Stearns: When you talked about US iPods being flat, is that year-over-year?

Tim: Unit sales, year-over-year were flat in the US, yes.

Andrew: Sense of what you were seeing in terms of consumer behavior with all this traffic?

Peter: In Dec. quarter, retail stores had a quarter for the record books. Mac sales 504,000. Up year-over-year. Over half Macs sold were to new Mac users.

Andrew: Store opening plans for this year? What do you see in domestic and international?

Peter: 35-40 stores will open in fiscal 2008. Today, about 25 stores are outside of the US, and more stores will open internationally in 2008 than they did in 2007, including first stores in China.

2:44 PT - DM: Tony with Stanford Bernstein: Can you explore comments on different curve of demand seen in last month of quarter: only iPods or did the Mac curve look any different?

Tim: Mac was very strong throughout the quarter; that curve had to do with iPods. Point is that the shape of the curve in the buying season was different in US, but similar internationally.

Tony: Rough math might suggest non-Apple channels only grew in single digits in the US; comment what you're seeing in those channels relative to other quarters?

Tony: If US grew at 27%, stores grew at 50%. He's trying to figure out the other channels and see if there are any other observations about linearity throughout the quarter (some of the math here is a bit over my head in terms of what he's trying to figure out here).

Tony: Can you comment on the number of unlocked phones estimated sold?

Tim: Number of phone bought with intention of unlock was significant, but not sure how to estimate that. Saw sales increase as predicted in Dec. quarter vis-a-vis holiday gift-buying pattern. Not sure about when people are actually activating. Don't have a precise estimate. We see this phenmenon as an expression of very strong interest in iPhone globally, and in that way "it's a good problem to have."

Tony: Believe percentage of unlockers higher or lower?

Tim: Too early to tell, but I think it's significant.

Tony: Given that iPhone has over $1 billion in deferred revenue, a reason you're not disclosing iPhone channel info?

Peter: Since only one channel partner in each country, not reporting inventory.

The iPhone unlocking questions are fascinating to me. Essentially the story here is that Apple sees a lot of iPhone sales that never end up getting activated with their partner in whatever country they're in. Their speculation here is that these are people who live in countries without iPhones, and people are so desperate to get Apple's iPhone technology that they're willing to unlock the phone in order to use it in their country. The fact that Apple thinks those numbers are "significant" is kind of amazing to me, but then again I've heard tell of iPhones all over China, and of course there's no deal to legally bring the iPhone to China. -J.S.

2:49 PT - DM: Mike at RBC: Help reconcile 2.3 million in December with 4 million announced at Macworld?

Peter: 4 million iPhone were to date as of keynote. 3.7 million iPhones sold cumulatively sold through Dec. quarter were part of that.

Mike: Increase in run rate since December?

Peter: I'll leave the analysis to you, but remain confident and seeing good sales.

Mike: Quantitative or qualitative in international iPhone results compared to US?

Tim: Very limited experience, but very happy with all the launches so far.

Mike: Is 3G and Bluetooth important to that iPhone outlook and European market?

Tim: We believe DRAM and flash memory remaining pretty flat. LCD markets in a close balance, with some improvements in cost. Most other components, seasonally slow March quarter results in pretty flat costs.

Question: Should we be building in expectation of sequentially down shipments for iPhones?
Peter: We've only recently begun selling iPhones, so can't comment.

2:53 PT - DM: Shaw Wu (everybody's favorite analyst!) from American: Desktop business was stronger than portable in sequential and year-over-year. Any color?

Tim: iMac announcement in August was extremely well-received and iMac has enormous momentum. Total desktops grew at 53% comparing to IDC's projection of 10% desktop growth.

Shaw (isn't it Shaw?): Re: iPhone seasonality. It's a little early, but looking for a little help in terms of thinking about iPhone seasonality?

Peter: Just not something I can comment on this quarter. We'll report to you in April about March quarter.

Indeed, if you look at Mac sales, laptop sales receded quarter-to-quarter, but desktop sales were up sharply. And Cook points out that Apple's desktop sales grew at 53% and the iMac sales were even better than that. We'll see what the MacBook Air does, if anything, for Mac laptop sales in the second quarter. -J.S.

Tim: Mac was available in 9500 outlets this year compared to 7700 a year ago. Plan on doubling the number of Best Buy stores.

Chris: iPhone outlets? Is there a target? Expansion of Best Buy relationship?

Tim: 2500 storefronts in Europe carrying iPhone, between UK, France, Germany. 2000-2100 in US between Apple Stores and AT&T stores. Nothing to announce today in terms of expansion.

2:56 PT - DM: Andy at Pacific Securities: On Apple TV, any plans on new in store displays? Any other marketing, especially at 3rd party retailers?

Tim: We're looking at it, but nothing to announce today.

Andy: Doing anything to promote corporate use in reseller channel or in education?

Tim: Education market had record Q1; grew about 5x IDC's forecasted rate of growth, both K12 and higher ed. Many many examples of small businesses using Macs; large corporations remain interested as well.

2:57 PT - DM: And we're wrapping up. If you want to listen, the call will be available as a podcast (oh joy!). If you're having trouble getting to sleep tonight, the replays will be available at 5PM PT today.

2:58 PT - DM: That's all, folks. If you enjoyed it half as much as we did, well, we enjoyed it twice as much as you. See you next quarter.

Thanks for tuning in, everybody. We listen to financial conference calls so you don't have to! -J.S.